Computer system for an auction exchange for financially settled contracts

ABSTRACT

Various embodiments show a system for conducting an auction for a plurality of financially settled contracts: The system may comprise at least one processor. The at least one processor may be programmed to receive a plurality of first participant bids from a first participant and a plurality of second participant bids from a second participant. The at least one processor may also be programmed to match a batch of bids, where the bids may be linear combinations, to create a plurality of awarded bids that may maximize an economic surplus or maximize a volume of awarded bids. Degenerate price solutions may be solved by minimizing variations from historic pricing levels for a contract. The contracts may include, for example, an oil contract, a coal contract, a natural gas contract, an electricity contract, a weather contract, a weather-related events contract, a commodities contract, a location specific service contract (e.g., passenger contract and/or freight contracts), a financial derivative contract or credit default contract on any of an entity&#39;s issued securities.

CROSS-REFERENCE TO RELATED APPLICATIONS

This application is a continuation-in-part of U.S. patent applicationSer. No. 11/986,091 filed on Nov. 20, 2007, which is incorporated hereinby reference in its entirety.

FIELD OF THE INVENTION

Embodiments of the invention generally relate to methods and systems forfacilitating, performing and/or participating in auctions of financiallysettled contracts.

BACKGROUND

The present disclosure relates to auctions for financially settledcontracts. Financially settled contracts are traded over-the-counter andon various exchanges including, for example, some forward commoditiesexchanges. Participants trade financially settled contracts outright andmay also trade spreads and strips of financially settled contracts. Aspread includes a short position in a first contract and a long positionin a second contract, equating to a position that settles on adifference in price between the two contracts. A strip includes likepositions (e.g., long or short) in two contracts over consecutivesettlement periods. Advancements are needed in the trading offinancially settled contracts to improve liquidity, volume and otherfactors.

FIGURES

Embodiments of the present invention are described herein, by way ofexample, in conjunction with the following figures, wherein:

FIG. 1 illustrates one embodiment of a computer system architecture forfacilitating an auction exchange for financially settled contracts;

FIG. 2 illustrates one embodiment of a process flow for implementing anauction of financially settled contracts utilizing the architectureshown in FIG. 1;

FIG. 3 illustrates one embodiment of a process flow that may beimplemented by the architecture of FIG. 1 to match and award bidsselected from a batch;

FIG. 4 illustrates one embodiment of a graph illustrating a degeneratevolume solution for matching bids;

FIG. 5 illustrates one embodiment of a graph illustrating a degenerateprice solution for matching bids;

FIG. 6 illustrates one embodiment of a diagram showing exampleelectricity forward contracts and various available bids that may besupported by the architecture of FIG. 1;

FIG. 7 illustrates one embodiment of a computer system for implementingthe architecture of FIG. 1;

FIG. 8 depicts an exemplary chart for pricing scenarios; and

FIG. 9 depicts an exemplary chart and path graph of a path degeneratesolution.

DESCRIPTION

In one general aspect, embodiments of the present invention may bedirected to a computer system for conducting an auction exchange for aplurality of financially settled contracts. The system may comprise atleast one computer. The at least one computer may be programmed toreceive a plurality of first participant bids from a first participantand a plurality of second participant bids from a second participant.The at least one computer may also be programmed to match a batch ofbids to create a plurality of awarded bids. The batch of bids maycomprise the plurality of first participant bids and the plurality ofsecond participant bids. Each bid of the batch of bids may relate to atleast a portion of the plurality of financially settled contracts, andthe awarded bids may maximize an economic surplus. Also, the matchingmay comprise matching an outright bid with at least one leg of at leastone non-outright bid.

Other embodiments of the present invention may be directed to a computersystem for conducting an auction for a plurality of financially settledcontracts. The system may comprise at least one computer system able toreceive a plurality of first participant bids from a first participantand a plurality of second participant bids from a second participant.The at least one computer system may also be able to match a batch ofbids to create a plurality of awarded bids, wherein the batch of bidsmay comprise the plurality of first participant bids and the pluralityof second participant bids. Each bid of the batch of bids may relate toat least a portion of the plurality of financially settled contracts.The matching may comprise matching an outright bid with at least one legof at least one non-outright bid. The matching may also resolve at leastone path degenerate solution by maximizing a volume of awarded bids.

FIG. 1—Computer System Architecture

FIG. 1 illustrates one embodiment of a computer system architecture 100for facilitating an auction exchange for financially settled contracts.The financially settled contracts may be contracts that are settled incash rather than by delivery of a commodity. The financially settledcontracts may include, for example, contracts that settle on the priceof an underlying value, such as a commodity, security, index, or othervalue over a specified settlement period. The auction architecture 100may comprise a trade platform 104 configured to conduct the auctions.The trade platform 104 may include an auction engine 118 for conductingvarious auctions by matching bids, for example, as described below.Optionally, the trade platform 104 may also be configured to work inconjunction with brokers 110. For example, the trade platform 104 maycomprise a trade capture system 120 to aid in the execution ofbroker-facilitated trades. Broker-facilitated trades may allow tradeplatform participants 102 to make and fill bids outside of the auctionprocess. This may be useful, for example, for participants 102 who wishto trade a position in between auctions, or for participants 102 whosebids in an auction were not awarded.

The trade platform 104 may be in communication with various otherparties. For example, the one or more participants 102 may submitauction bids, auction constraints, broker bids, and the like, to thetrade platform 104. Participants 102 may also receive positions awardedas a result of the auctions or broker transactions. A clearingcorporation 106 or other clearing party may provide additional auctionconstraints and may clear awarded bids generated by the trade platform104 in the various auctions as well as awarded bids cleared in brokertransactions. Clearing members 108 for the participants 102 may handlevarious matters related to the clearing of winning bid pairs and mayalso provide auction constraints.

The trade platform 104 may also include various interfaces 112, 114, 116for facilitating communication with other parties of the architecture100. For example, a participant interface 112 may handle communicationswith the various participants 102. A broker interface 116 may handlecommunications with the various brokers 110. Also, a clearing interface114 may handle communications with the clearing corporation 106 andclearing members 108. The various components 112, 114, 116, 118, 120 ofthe platform 104 may be implemented according to any suitable hardwareand/or software methods. For example, the components 112, 114, 116, 118,120 may comprise various software modules executed by the processor orprocessors of one or more servers or other computing devices.

The trade platform 104 may be configured to handle bids and auctions forany kind of financially settled contracts. According to variousembodiments, however, the trade platform 104 may be configured tosupport auctions for contracts that settle on locationally dependingunderlying values, such as some energy-related contracts, or forcontracts that settle financially, based on events or securities pricesat a highly granular level. For example, locational energy-relatedcontracts may include oil contracts; coal contracts; natural gascontracts; and electricity contracts; weather contracts; weather-relatedevents contracts; location-specific services contracts (e.g., passengercontracts; freight contracts), and the like. Financially settledcontracts on events or security prices may include financial derivativesor credit default swaps on any of an entity's issued securities. Also,according to various embodiments, the trade platform 104 may beconfigured to support auctions that include other commodities (e.g.,agricultural commodities, raw materials, and the like) and events orproperties that may affect the prices of the other commodities.

FIG. 2—Process Flow

FIG. 2 illustrates one embodiment of a process flow 200 for implementingan auction for financially settled contracts, for example, utilizing thearchitecture 100 shown in FIG. 1. At box 202, the trade platform 104 mayreceive bid submissions from participants 102 for an auction. Bidsubmissions for any given auction may be received over a predeterminedbid submission period, (e.g., one day prior to the auction, one weekprior to the auction, and the like). Each bid submission may compriseone or more bids for positions on financially settled contracts to beconsidered in the auction. Participants 102 may submit all of their bidsfor the auction at the same time, or may make multiple submissions. Whena participant 102 submits more than one bid, the participant may havethe option to prioritize their bids. The auction engine 118 may utilizethe priorities, as described below, if it becomes necessary to discardone or more bids. The set of all bids submitted for a given auction maybe referred to as a batch.

Bids may include outright bids for a contract and/or non-outright bids.An outright bid may be a bid for a position having a one-to-onecorrelation with a contract. An outright bid may comprise an indicationof a contract (e.g., a commodity code, location code and settlementperiod), a quantity, a price, a commodity type, and an indication ofwhether the bid is for a long or short position on the contract. Anon-outright bid may be a bid for a position that does not have aone-to-one correlation to a contract. For example, some non-outrightbids may have multiple legs, where each leg represents a position (e.g.,long or short) in a particular contract. Some non-outright bids mayinclude one or more legs representing a single position that is lessthan all of a contract (e.g., over a smaller period than the tenor ofthe contract). Spread bids and strip bids may be non-outright bids.Accordingly, a non-outright bid may comprise an indication of eachcontract corresponding to a leg of the non-outright bid. The indicationmay include, for example, quantity, price, settlement period, andcontract code, as well as an indication of which leg or legs are shortand which leg or legs are long. According to various embodiments,non-outright bids may be permitted to include any combination of longand short legs.

The trade platform 104 may be configured to support outright andnon-outright bids across an arbitrary number of dimensions. Anon-outright bid may be a bid that does not have a one-to-onecorrelation to a particular contract. A non-outright bid may includepositions in multiple contracts, or a position having a nominal valuethat is not an integer multiple of the nominal value of the underlyingcontract. For example, non-outright bids may include any combination oflegs for positions in contracts settling on any combination orcombinations of underlying values, quantities and/or settlement periods.One example non-outright bid may comprise a long position on a contractfor a first underlying (e.g., the price of a commodity at a firstlocation) settling over a first time period and a short position on acontract for a second underlying (e.g., the price of the same or adifferent commodity at a second location) settling over a second timeperiod. Non-outright bids may also match un-like numbers of positions.In the context of an electricity forward contract exchange, an examplenon-outright bid may include a long position on a quantity of powergenerated over a first settlement period at four nodes and acorresponding short position on power delivered at three other nodesover the first settlement period.

Another example non-outright bid is a spread-of-spreads bid. Aspread-of-spreads bid may a bid valuing a spread between a first spreadand a second spread. For example, the first spread may be betweencontracts settling over two different commodities over a first timeperiod. The second spread may be between contracts settling over thesame two commodities over a second time period. Another examplenon-outright bid may be a non-contiguous multi-period bid. A first legor legs of such a bid may settle on a first contract or contracts over afirst settlement period and a second leg or legs may settle on the firstcontract over a second settlement period that is not contiguous to thefirst. Yet another example non-outright bid is a proportional bid. In aproportional bid, one or more legs may be based on the price of anunderlying contract multiplied by a proportionality constant. An exampleproportional bid may be a locational electricity contract paired with aproportional amount of locational gas contracts with a proportionalityconstant equal to the conversion efficiency of a gas turbine generationplant. In this example, the awarded proportional bid may act as a directfinancial hedge to the operating costs and revenues of a gas turbinegeneration plant.

According to various embodiments, the auction engine 118 may beconfigured to derive a position or combination of contract positionsthat are equivalent to the position represented by each participant bid.For example, positions in some contract types may be expressedsynthetically in terms of other contracts. This may allow the auctionengine 118 to match a bid or bid leg on one type of contract with acorresponding bid or bid legs on another type of contract. For example,as described below, an electricity loss contract may be expressed as aspread between an electricity price contract and an appropriatecongestion contract. According to various embodiments, a participantneed only bid for a position and need not specify a particular contractor contracts. Also, if the position of a participant's bid may berepresented by more than one combination of contract positions, theauction engine 118 may be configured to substitute equivalent positionsin order to derive an optimal solution.

At box 204, the trade engine 104 may receive participant constraints.For example, participant constraints may include collateral limits andtrade limits. A collateral limit for some or all of the participants maybe received from the clearing corporation 106 or other clearing party. Acollateral limit, or margin parameter, may be a limit on the positionsthat a particular participant is permitted to hold based on the amountof collateral that the participant has posted or has available to post.According to various embodiments, awarded bids and other transactionsmay be novated by the clearing corporation 106, as described below. Thismakes the clearing corporation 106 the counter party to both sides ofeach transaction, causing the clearing corporation 106 to bear the riskof participant defaults. To mitigate this risk the clearing corporation106 may require participants to back up their positions with collateral.The amount of collateral required for a given position (e.g., acollateral limit or margin) may be set for a participant 102 based onthe risk of the participant's portfolio, the historical volatility ofthe portfolio, correlations among the contracts comprising theportfolio, and the risk tolerance of the clearing corporation 106 withrespect to the participant 102. In one embodiment, the collateral limitfor a given participant may be provided to the trade platform 104 by ageneral clearing member (GCM) responsible for clearing transactions forthe participant 102 and may stay in effect until revoked or revised bythe GCM.

A trading limit for a particular participant 102 may be used toconstrain the trading activities of the participant 102. A trading limitmay represent the maximum trading activity that a participant 102 mayundertake in a single period (e.g., a day a month, and the like). Thetrading limit may be expressed, for example, as a number of trades or avolume. The trading limit for any given participant 102 may be set bythe participant 102, by the trade platform 104 or by clearingcorporation 106 or the GCM responsible for the participant 102.

According to various embodiments, the bids received from eachparticipant 102 may be pre-screened, at box 206. Prescreening a bid maycomprise generating a list of unique contracts for which eachparticipant 102 has submitted bids. For example, each outright bid mayhave one associated contract. Some non-outright bids, (e.g., thosehaving multiple legs), may have more than one associated contract.Prescreening may also involve creating a pre-screening file for eachparticipant 102. The pre-screening file may include any parameters thatare necessary to calculate collateral requirements for various positionsin associated contracts. Such parameters may include, for example, aninitial margin for each contract and inter-commodity spread credits. Aninitial margin for a contract may represent an amount of collateralrequired for an outright position in the contract. An inter-commodityspread credit may represent reduction in collateral (e.g., a percentage)that is awarded for offsetting positions (e.g., long and short) in twoseparate but correlated contracts. The pre-screening file may typicallyinclude less than the entire set of parameters describing the market.This may allow the auction engine 118 to calculate the collateralrequired for a participant's positions without the need to process thefull set of market parameters.

At step 208, the trade platform 104 (e.g., the auction engine 118) mayperform the auction by matching corresponding bids within the batch.According to various embodiments, the matching may be co-optimized foroutright bids and non-outright bids (e.g., any kind of offsettingpositions may be matched). For example, each leg of a non-outright bidmay be treated as an outright bid and may be matched with any offsettingposition including, for example, an offsetting outright bid and/or anoffsetting leg or combination of legs from other non-outright bids.Likewise an outright bid may be matched with an offsetting outright bid,or with any combination of non-outright bid legs. Also, according tovarious embodiments, contracts of different tenors or settlement periodsmay be matched. For example, a bid for a contract having a tenor longerthan a pre-determined tenor may be expressed as a bid for an equivalentbundle of contracts having the pre-determined tenor. Such a bid may bematched with: other bids for the same bundled contract; some combinationof offsetting bids for pre-determined tenor contracts; and/or someportion of a bid for other bundled contracts.

According to various embodiments, the set of bids to be considered forany given contract may include all outright bids for the contract aswell as all legs of non-outright bids that can be expressed in terms ofa position in all or a portion of the contract. In some embodiments, theauction engine 118 may be configured to avoid partially awarding a bid.For example, the auction engine 118 may not match any of the legs of anon-outright bid unless it is able to match all of the legs of thenon-outright bid. In this way, participants may be able to constructbids for complex positions without assuming the risk that less than allof the position will be awarded. Also, in various embodiments, the totalawarded positions in each contract may be set equal to zero (e.g., thevolume of matched or awarded long positions in any given contract may beequal the volume of awarded short positions). This may be referred to asa zero-capacity constraint.

Several examples of positions that may be matched are now provided. In afirst example, a first participant may place an outright bid for a longposition in 1000 cubic feet of natural gas at location A over a firstsettlement period. A second participant may place an outright bid for ashort position in 1000 cubic feet of natural gas at location B over thesame settlement period. A third participant may place a non-outright bidfor a position in 1000 cubic feet from location A to location B over thesame settlement period. The short leg of the non-outright bid (e.g.,1000 cubic feet at location A) may be matched with the firstparticipant's bid, while the long leg of the non-outright bid (e.g.,1000 cubic feet at location B) may be matched with the secondparticipant's bid. In another example, a first participant may make anon-outright bid for a long position in a commodity contract with atenor of three months. Three other participants may bid for shortpositions in the commodity, with one short position corresponding toeach of the three months covered by the first participant's bid. Thefirst participant's bid may be matched with the bids of the three otherparticipants.

According to various embodiments, the batch of bids may be matched tooptimize an auction variable. For example, in some embodiments, theauction engine 118 may solve for the combination of bids that maximizesauction revenue. Auction revenue may be the total notional value of allawarded bids. Also, in some embodiments, the auction engine 118 maysolve for the combination of bids that maximizes transaction volume, andtherefore promotes liquidity. A combination of auction revenue andtransaction volume may also be optimized.

In an alternative embodiment, the auction engine 118 may match the batchof bids to optimize an economic surplus. The economic surplus may be thetotal amount awarded to each bid in the batch of bids multiplied by thedifference between each bid's price and the actual price the bid wascleared at. This may be represented by the equation:

$\sum\limits_{b}^{\;}\;{\left( {{BidP}_{b} - {AwardP}_{b}} \right)*{{AwardQ}_{b}.}}$The optimization for economic surplus may be performed by the auctionengine 118 across all bids in the batch of bids simultaneously, ratherthan on a contract by contract basis. The optimization may beconstrained by participant collateral constraints, bid quantities, andbid prices. In some embodiments, the auction engine 118 may optimize foreconomic surplus after box 216.

At box 210, the auction engine 118 may create a preliminary awardedportfolio for each participant 102 based on the results of the matchingat step 208. A preliminary awarded portfolio may represent all of aparticipant's bids that were successfully matched to other positionsaccording to the constraints of the auction. At box 212, the auctionengine 118 may determine whether any of the preliminary awardedportfolios violate the corresponding participant constraints. Forexample, a participant's preliminary awarded portfolio may violate aparticipant constraint if it causes the participant to take a positionthat is in excess of that participant's trade limit, or would requirecollateral in excess of the participant's collateral limit. Thepre-screening file derived at box 206 may be utilized to streamline theprocess of determining the collateral required for the preliminaryawarded portfolio.

For any preliminary awarded portfolios that violate participantconstraints, the auction engine 118 may discard a subset of bids fromthe portfolio at step 214 such that the bids remaining in the portfoliodo not exceed the participant constraint. If the participant hassubmitted bid priorities, then the bids given the lowest priority by theparticipant may be discarded first. According to various embodiments, ifthe participant has failed to provide bid priorities, then bids may besuccessively discarded in ascending order of positive impact on theparticipant's economic surplus, with the bid whose presence in theportfolio has the least positive (or most negative) impact discardedfirst until the participant constraints are met. After bids arediscarded, the auction process may be repeated at box 208, generatingnew preliminary awarded portfolios for each participant. This processmay continue iteratively until all awarded portfolios meet theircorresponding participant constraints. According to various embodiments,the auction engine 118 may be programmed to optimize the matching ofbids to meet participant constraints on the first iteration, making itunnecessary to recalculate the awarded portfolios multiple times.

At box 216, the auction engine 118 may set a price for each contract forwhich bids were entertained. Contracts having awarded bids, or awardedbids on equivalent positions, may be set to the price of the awardedbids. Not all contracts, however, may have awarded bids. Contractswithout awarded bids may be priced according to any suitable manner. Forexample, if a contract has a lowest received short bid that exceeds thehighest received long bid, the price may be set at the midpoint of thelowest short bid and the highest long bid. Also, some contracts may haveno awarded positions despite having a highest long bid that exceeds thelowest short bid. For example, the optimal auction solution may not haveincluded any possible transactions for these contracts. The price ofsuch contracts may be set to the intersection of long and short bids(e.g., the intersection of supply and demand). Still other contracts mayhave received no bids. For these contracts, prices may be extrapolatedfrom the clearing prices of other contracts in the auction, for example,based on historical price correlations. In various embodiments, apercent change in the price of a first contract or contracts in thecurrent auction from the previous auction may be applied to othercontracts which are highly correlated to the first contract orcontracts. For example, given two highly correlated contracts A and B,if contract A increased in price by 5% in a current auction, while therewere no bids for contract, B, then the price of contract B may be set toa value 5% higher than its previous prices.

At box 218, some or all of the un-awarded bids from the auction may beforwarded to a broker trading platform comprising the trade capturesystem 120. According to various embodiments, participants may choosewhether their un-awarded bids are forwarded to brokers 110 or discarded.Authorized brokers 110 may access the trade platform 104 to viewun-awarded bids, as well as any other non-auction bids submitted to abroker 110 or to the trade platform 103. Brokers 110 may then solicitcounter-parties for the bids. If a counter party is found, thetransaction may be forwarded to the trade capture system 120, which mayfacilitate the transaction. For example, the trade capture system 120may verify that the broker 110 is authorized to transact on the tradeplatform 104; verify that the participant 102 is authorized to transacton the trade platform 104; and/or verify that the transaction would notviolate a participant constraint, such as a collateral constraint or atrade limit. Provided that the transaction is properly authorized, itmay be forwarded to the clearing corporation 106. It will be appreciatedthat the brokers 110 may also receive other bids outside of the auctionprocess. For example, auctions may be held periodically (e.g., daily,weekly, monthly). Participants who desire a transaction between auctionsmay submit bids to one of the brokers 110. If a counter party is found,the transaction may proceed to the trade capture system 120 asdescribed.

Referring back to FIG. 2, awarded bids may be cleared at step 220.According to various embodiments, the clearing corporation 106, or otherclearing party, may act as a counterparty to all transactions. Through aprocess called novation, each trade between two participants may besplit into two trades, whereby the clearing corporation 106 becomes thebuyer to the selling participant and the seller to the buyingparticipant.

In embodiments where this clearing arrangement is used, the clearingcorporation 106 may assume most of the credit risk inherent in thetransaction. To mitigate this risk, some clearing corporations 106 mayrequire that all positions be settled on a periodic (e.g., daily) basis,regardless of the maturity of the underlying contracts. For example, ifa participant has a long position in a first contract, and the closingprice of the first contract falls by $10, the clearing corporation maytransfer $10 from the participant's margin account to the clearingcorporation 106 to cover the position. Likewise, the clearingcorporation 106 may transfer $10 to the margin accounts of anyparticipants holding long positions in the futures contract. The pricesused to determine changes in value of various contracts may be, forexample, the prices found at box 216 as described above.

According to various embodiments, the trading platform 104 may generatesufficient liquidity to allow it to handle auctions for large numbers ofcontracts. For example, as the number of contracts considered in anauction increases, the number of outright bids for each contractdecreases, bringing about a corresponding decrease in liquidity.Utilizing the systems and methods described herein, may promoteliquidity. For example, matching outright bids with a leg or legs ofnon-outright bids may generate more matched bids per outright bid. Inaddition, according to various embodiments, the number of allowednon-outright bid configurations may draw more participants to the marketfor arbitrage and speculation opportunities, further increasingliquidity. Accordingly, in the context of a forward commodities market,(e.g., a forward electricity market) the trading platform 104 may beable to support auctions on over one hundred thousand contracts.According to various embodiments, the trading platform 104 may be ableto support auctions on more than a million contracts.

FIG. 3 illustrates one embodiment of a process flow 300 that may beimplemented by the auction engine 118 of the trading platform 104 tomatch and award bids selected from a batch. At box 302, the auctionengine 118 may match bids from the batch to optimize the auctionvariable or variables (e.g., auction revenue and/or auction volume), forexample, as described above. According to various embodiments, theauction engine 118 may match bids to maximize auction volume, forexample, as expressed by Equation (1):

$\begin{matrix}{\sum\limits_{n}^{\;}\;{\sum\limits_{b}^{\;}\;{{{AwardP}_{n,b} \times {AwardQ}_{n,b}}}}} & (1)\end{matrix}$In Equation (1), n is the set of all contracts in the auction; b is theset of all bids that include a position in a contract n (includingoutright and non-outright bids); AwardP_(n,b) is the auction price forthe contract n, and AwardQ_(n,b) is the number of contracts awarded forcontract n from bid b.

The auction engine 118 may maximize Equation (1) subject to variousconstraints. For example, the sum of awarded positions in a contract maybe set equal to zero (e.g., a zero-capacity constraint):

$\begin{matrix}{{\sum\limits_{b}^{\;}\;{AwardQ}_{n,b}} = 0} & (2)\end{matrix}$Also, the maximum price for a contract in an awarded bid may be setbetween zero and a maximum bid price. For example, Equation (3)expresses this condition for long bids and bid legs:0≦AwardQ_(n,b)≦BidQ_(n,b)  (3)In Equation (3), BidQ_(n,b) may be the maximum bid quantity. Similarly,Equation (4) expresses this condition for short bids and bid legs:0≧AwardQ_(n,b)≧BidQ_(n,b)  (4)In addition to these conditions, the price of each awarded bid may beless than or equal to the highest bid prices. Equation (5) expressesthis condition for outright bids:AwardP_(n,b)≦BidP_(n,b)  (5)In Equation (5), BidP_(n,b) may be the maximum bid price. Similarly,Equation (6) expresses this condition for non-outright bids havingmultiple legs:AwardTP_(b)≦BidTP_(b)  (6)Here, AwardTP_(b) may be the sum of the bid prices for all bids b on thecontract n, as set forth in Equation (7):

$\begin{matrix}{{AwardTP}_{b} = {\sum\limits_{n}^{\;}\;{BidP}_{n,b}}} & (7)\end{matrix}$

In an alternative embodiment, the auction engine 118 may match bids tomaximize economic surplus, for example, as expressed by Equation (8):

$\begin{matrix}{\sum\limits_{b}^{\;}\;{{\left( {{BidP}_{b} - {AwardP}_{b}} \right) \times {AwardQ}_{b}}}} & (8)\end{matrix}$In Equation (8), b is the set of all bids that include a position in acontract; AwardP_(b) is the auction price for the contract, andAwardQ_(b) is the number of contracts awarded for the contract from bidb.

The auction engine 118 may maximize Equation (8) subject to variousconstraints. For example, the sum of awarded positions in a contract maybe set equal to zero (e.g., a zero-capacity constraint):

$\begin{matrix}{{\sum\limits_{b}^{\;}\;{AwardQ}_{n,b}} = 0} & (9)\end{matrix}$

The awarded quantity for a contract in an awarded bid may be set betweenzero and a maximum bid quantity. For example, Equation (10) expressesthis condition for long bids and bid legs:0≦AwardQ_(n,b)≦BidQ_(b)  (10)In Equation (10), BidQ_(b) may be the maximum bid quantity. Similarly,Equation (11) expresses this condition for short bids and bid legs:−BidQ_(b)≦AwardQ_(n,b)≦0  (11)In addition to these conditions, the price of each awarded bid may beless than or equal to the bid prices. Equation (12) expresses thiscondition for outright bids:for each bid with one long contract n: AwardP_(nb)≦BidP_(b)For each bid with one short contract n: AwardP_(nb)≧BidP_(b)  (12)In Equation (12), BidP_(n,b) may be the maximum bid price. Similarly,Equation (13) expresses this condition for non-outright bids havingmultiple legs:AwardP_(b)≦BidP_(b)  (13)Here, AwardP_(b) may be the sum of the bid prices for all bids b on thecontract n, as set forth in Equation (14):

$\begin{matrix}{{AwardP}_{b} \geq {{\sum\limits_{n}^{\;}\;{AwardP}_{b}} - {\sum\limits_{m}^{\;}\;{AwardP}_{m}}}} & (14)\end{matrix}$

Any suitable optimization algorithm may be used including, for example,a simplex algorithm. For example, a CPLEX optimization engine may beutilized. According to various embodiments, additional constraints mayrequire that the matched bids meet all participant constraints.

FIGS. 3, 4, 5, 8, and 9—Degenerate Solutions

At decision 304, the auction engine 118 may determine whether theoptimization algorithm has resulted in any degenerate solutions. Adegenerate solution may occur when there is more than one auctionsolution where a given auction variable is optimized, or where nosolution if found. For example, FIG. 4 illustrates one embodiment of agraph 400 illustrating a degenerate volume solution for matching bids.As shown in the graph 400, an optimal cleared volume may be achievedanywhere along a horizontal demand and supply curve portion 402. Also,FIG. 5 illustrates one embodiment of a graph 500 illustrating adegenerate price solution for matching bids. In the example shown by thegraph 500, the optimal price may occur anywhere along a vertical portion502 of the demand and supply curve.

Referring back to FIG. 3, any degenerate solutions may be resolved atbox 306. For example, if a degenerate volume solution exists, theauction engine 118 may select the solution having the maximal optimizedcleared volume and/or auction revenue. Also, for example, if adegenerate price solution exists, the auction engine 118 may average thehigh and low values of the optimized values for price to select theprice value to be used.

In an alternative embodiment, if a degenerate price solution exists,where a range of prices could be valid for a contract, the auctionengine 118 may resolve the degeneracy by selecting market prices thatreduce the variation from historic price levels. FIG. 8 depicts anexemplary chart for pricing scenarios. In a first scenario 801, pricingis not degenerate, as the contract is fully liquid and therefore themarket is able to determine a price, regardless of the historicalpricing of the contract.

In a second scenario 802, the pricing is degenerate. For contracts withbids, offers, and spreads, a range of valid prices between P_(min) andP_(max) exist. For contracts with only bids, a range of valid pricesbelow P_(max), and for contracts with only offers, a range of validprices above P_(min) exist. To solve this degeneracy, the auction engine118 may minimize the least squares deviation from the historic price forall degenerate prices within the bounds of the auction. The pricing maybe based on the minimization of:

$\sum\limits_{{{All}\mspace{11mu}{nodes}}{{with}\mspace{11mu} a\mspace{11mu}{range}}{{of}\mspace{11mu}{valid}\mspace{11mu}{prices}}}^{\;}\;(\Delta)^{2}$The price may be set to minimize the overall variance from the lastprice mark, while preserving the complex relationship between contractprices due to the abundance of spread bids in the auction. Because ofthe pricing interdependencies created by spread and aggregate orders,even if the historic price is within the valid range of prices, themarket clearing price may not necessarily be set to the historic price.

In a third scenario 803, the pricing is degenerate because no marketpricing can be established. In this scenario, the auction engine 118 mayestablish a price based an extrapolation of market data.

In another alternative embodiment, the auction engine 118 may determinethat the optimization algorithm has resulted in a path degeneratesolution. In a path degenerate solution, there may exist more than oneway to match bids and offers at the same price levels, resulting in thesame economic surplus. The auction engine 118 may choose among pathdegenerate solutions by maximizing volume, choosing a path that involvesthe greatest number of awarded contracts. FIG. 9 depicts an exemplarychart and path graph of a path degenerate solution. The chart 901 may bea chart for an exemplary market with seven placed orders for long andshort positions in the contracts A, B, C, D, and E. The path graph 902may be a path graph for two potential paths for awarding contracts basedon the exemplary market of the chart 901.

Following the first path of the path graph 902, from A to E to D, orders1, 5, 6 and 7 may be filled. Order 1's long A leg may be matched withorder 6's short A leg. Order 6's long E leg may be matched with order7's short E leg. Order 7's long D leg may be matched with order 5'sselling of D. Because order 5 only sells 10 MW of D, volume for theother trades is limited such that order 7 is awarded 10 MW of D andshorts 10 MW of E. Order 6 is awarded 10 MW of E, and therefore shorts10 MW of A. Order 1 is awarded 10 MW of A. The total volume of awardedcontracts for this first path is therefore 30 MW.

Following the second path of the path graph 902, from A to B to C to D,orders 1, 2, 3, 4 and 5 may be filled. Order 1's long A leg may bematched with order 2's short A leg. Order 2's long B leg may be matchedwith order 3's short B leg. Order 3's long C leg may be matched withorder 4's short C leg. Order 4's long D leg may be matched with order5's selling of D. Again, order 5's selling of 10 MW of D limits thevolume of all awarded contracts, so that order 1 is awarded 10 MW of A,order 2 shorts 10 MW of A and is awarded 10 MW of B, order 3 shorts 10MW of B and is awarded 10 MW of C, and order 4 shorts 10 MW of C and isawarded 10 MW of D. The total volume of awarded contracts for the secondpath is therefore 40 MW.

Because both the first path and the second path result in the sameeconomic surplus, as the path graph 902 shows that both paths result ina $1500/MW surplus, the auction engine 118 may choose to award contractsbased on the second path, solving the path degeneracy by maximizing thevolume of contracts awarded.

Price Islanding

At decision 308, the auction engine 118 may determine whether theoptimization algorithm has resulted in any price islanding. Priceislanding may occur when a cleared/matched set of non-outright bids fora given contract or contracts are not connected to the othercontracts/bids by an outright bid or another constrained bid (e.g., abid that depends on an outright position). This may result in a seriesof shadow prices for the islanded contracts that resolve to a range ofpossible prices. Any price islanding may be grounded at box 310, forexample, by using previous-auction period (e.g., previous day, week, andthe like) prices bound by the range of valid shadow prices for eachcontract.

Types of Contracts

The architecture 100 and trading platform 104 described above may beimplemented in any market or exchange dealing in financially settledcontracts. According to various embodiments, however, the architecture100 may be implemented in a forward commodity market having a network oflocationally defined, financially settled contracts. A locationallydefined contract may be a contract whose underlying value is a commodityor other value described by a combination of commodity or value type(e.g., natural gas, crude oil, congestion, loss, and the like) andlocation. The dependence on location may allow locationally definedcontracts to reflect variations in prices at different locations thatarise because of constraints on the flow or transport of the commodity.For example, the price of natural gas may not be the same at alllocations, at least in part because the layout and capacity of pipelinesmay limit the rate at which natural gas can be transferred betweenlocations.

Participants in the physical commodities markets are exposed to riskfrom the volatility in price of the physical commodities at specificlocations, and potentially from the volatility in price differentialsbetween locations. These participants may utilize a forward commoditymarket implementing the architecture 100 to hedge this risk. Because thearchitecture 100 may support a wide variety of non-outright bids varyingover different commodities, settlement periods and locations,participants may be able to better tailor hedges to the risk of theirphysical positions. Also, participants with or without physicalpositions may be better able to pursue complex trading strategies andarbitrage opportunities. The increased liquidity brought about by theauction methods described and by speculative and arbitrage activity, maymake it easier for physical position holders to obtain a desired hedge.

Electricity Markets

In another example embodiment, the architecture 100 and trading platform104 may be implemented in an electricity forward market. An electricityforward market may be a financial forward market whose contracts settleon the electricity-related values at various locations or nodes inphysical spot markets. For example, an electricity price contract maysettle on an average electricity price at a location on thecorresponding network (e.g., a region, hub or node) either duringon-peak or off-peak hours over a specified settlement period (e.g., 1day, 1 week, 2 months, 1 quarter, 1 year, and the like). A congestioncontract may settle on the congestion at a given node. A loss contractmay settle on the transmission loss between two nodes.

According to various embodiments, an electricity forward marketimplementing the architecture 100 may support nodal electricity forwardcontracts. Nodal electricity forward contracts may include contractsthat settle on an average electricity price, congestion or loss at anode or nodes over a specified settlement period (e.g., during on-peakor off-peak hours). This may require the market to support a largenumber of contracts, and address associated liquidity challenges. Forexample, the number of nodes considered by an electricity forward marketis limited only by the number of node locations on the correspondingspot market/grid. Some such grids may include several thousand nodes.Because each node may be the basis of multiple contracts (e.g.,contracts for different classes, time periods, and the like), the totalnumber of contracts traded in an electricity forward market may be quitelarge.

FIG. 6—Electricity Forward Contracts

FIG. 6 illustrates one embodiment of a diagram 600 showing exampleelectricity forward contracts and various available bids that may besupported by the architecture 100. The example forward electricitycontracts may be, for example, electricity forward contracts settling onthe price of electricity at a node, or congestion contracts. The diagram600 shows example contracts that settle at one of the nodes 1, 2 . . .N. According to various embodiments, the number of nodes, N, may matchthe number of nodes in a corresponding electricity distribution grid.For each node, the diagram 600 illustrates six contracts, A, B, C, D, E,F over three time periods, T, T+1 and T+2. T may be any period of timeincluding, for example, a day, a week, a month, or otherwise. Althoughonly three time periods are illustrated, in practice, bids may beaccepted for an arbitrary amount of time into the future. For example,according to various embodiments, the architecture 100 may accept bidsfor contracts that settle up to seventy-two months in the future. Asshown in the diagram 600, the contracts may be divided into classesbased on whether they settle during off-peak hours (B, D, F) or duringon-peak hours (A, C, E). Contracts settling on other underlying valuesmay also be divided into classes based on classifictions of theunderlying value.

The architecture 100 may support various outright and non-outright bidsbased on any combination of electricity forward contracts, such as thoseillustrated by the diagram 600. For example, for the forward electricitycontracts shown in the diagram 600, three dimensions are shown: (i) aclass dimension (e.g., on-peak versus off-peak); (ii) a settlementperiod dimension (e.g., T, T+1, T+2, and so forth); and (iii) alocational dimension (e.g., Nodes 1, 2 . . . N). Other market types mayinclude more or fewer dimensions.

Allowable bids may vary across any dimensions. For example, a singleperiod bid may be a straight outright bid for a long or short positionin any of the contracts shown. A multi-period bid may be a non-outrightbid including legs for contracts at a single location over multiple timeperiods. For example, box 602 illustrates a multi-period bid for on-peakcontracts 1A, 1C and 1E at node 1 spanning the settlement periods T, T+1and T+2. Multi-class bids may include legs for contracts at a singlelocation across multiple classes. For example, Box 604 illustrates amulti-class bid for contracts settling at Node 1 over settlement periodT across the on-peak and off-peak classes (e.g., 1A and 1B). Amulti-period, multi-class bid may include legs for contracts at a singlelocation across multiple classes and multiple settlement periods. Anexample of such a bid 606 may include legs for contracts 1A, 1B, 1C, 1D,1E and 1F at node 1. As another example, Box 612 illustrates amulti-period bid for on-peak contracts 2A, 2C and 2E at node 2 spanningthe settlement periods T, T+1 and T+2. As another example, Box 614illustrates a multi-class bid for contracts settling at Node 2 oversettlement period T across the on-peak and off peak classes (e.g., 2Aand 2B). As another example, Box 622 illustrates a multi-period bid foron-peak contracts NA, NC and NE at node N spanning the settlementperiods T, T+1 and T+2. As another example, Box 624 illustrates amulti-class bid for contracts settling at Node N over settlement periodT across the on-peak and off peak classes (e.g., NA and NB).

Various non-outright bids may include matched or unmatched positionsvarying across the class, settlement period and locational dimensions.For example, some non-outright bids may comprise a first leg or legstaking a short position in a first contract or contracts and a secondleg or legs taking a long position in a second contract or contracts.The number of short and long legs may, but need not match.

Also, a locational non-outright bid may include legs taking positionsacross two locations (e.g., nodes) for any settlement period or class.An example locational non-outright bid may include legs for contracts 1Aand 2A. A temporal non-outright bid may include legs taking positionsacross two settlement periods, which may or may not be contiguous. Anexample temporal non-outright bid may include a leg for a long positionin contract 1A and a leg for a short position in contract 1C. Alocational, temporal non-outright bid may comprise legs taking positionsacross two locations and two settlement periods. An example locational,temporal bid may comprise a long leg on contract 1A and a short leg oncontract 2C. Other example non-outright bids may include variations ofthe class dimension including, for example, inter-class bids, locationalinter-class bids, temporal inter-class bids, locational, temporalinter-class bids, and the like.

Bids may also vary across different types of underlying values (e.g.,electricity price, congestion, loss, and the like). According to variousembodiments, positions in one contract type may be expressedsynthetically in terms of positions in other contract types. Forexample, a loss position may be expressed as a spread between a priceposition and a congestion position. This may allow various embodimentsof the trading platform 104 to accept and award bids on certain contracttypes, without actually having the underlying contract available. Also,this may allow bids for positions in one type of contract (orcombination of contracts) to be matched with bids for positions in othertypes of contracts (or combination of contracts).

Linear Combinations

In an alternative embodiment, the auction engine 118 may allow theparticipants 102 to place bids on any linear combination of long andshort positions, instead of simple combinations of underlying contracts.For example, the auction engine 118 may handle a non-outright bid thatshorts 0.55 contracts of A for every 1 long contract of B, instead ofrestricting the non-outright bid to shorting 1 contract of A for every 1long contract of B. In this embodiment, the auction engine 118 maymaximize the economic surplus according to the equation:

${\max{\sum\limits_{b \in {bids}}^{\;}\;{{BidP}_{b} \times {AwardQ}_{b}}}},$subject to the constraint:

for each contract, n:

${{\sum\limits_{{b \in {bids}},{n \in {contracts}}}^{\;}\;{AwardQ}_{b,n}} = {{0\mspace{14mu}{where}\mspace{14mu}{AwardQ}_{b,n}} = {{AwardQ}_{b} \times Y_{b,n}}}},\mspace{14mu}{and}$where Y is a vector that describes the weights on each of the underlyingcontracts in a bid b; and also subject to the constraint on specificbids that the quantity awarded not exceed the quantity of the bid0≦AwardQ_(b)≦BidQ_(b).

Price may be set by the auction engine 118 according to the followingrules:

$\sum\limits_{n \in {contracts}}^{\;}\;{\left( {P_{c} \times Y_{b,n}} \right)\left\{ \begin{matrix} = & {BPrice}_{b} & {b\mspace{14mu}{is}\mspace{14mu}{Price}\mspace{14mu}{Defining}\mspace{14mu}({basic})} \\ \leq & {BPrice}_{b} & {b\mspace{14mu}{is}\mspace{14mu}{awarded}\mspace{14mu}{volume}} \\ \geq & {BPrice}_{b} & {b\mspace{14mu}{is}\mspace{14mu}{not}\mspace{14mu}{awarded}\mspace{14mu}{volume}}\end{matrix} \right.}$FIG. 7—Computer System

FIG. 7 illustrates one embodiment of a computer system 700 forimplementing the architecture 100. The system 700 may include one ormore servers 702. The one or more servers 702 may include a processor orprocessors configured to execute one or more software modules 708. Eachsoftware module 708 may implement all or a part of a functionalcomponent of the architecture 100. For example, one of the softwaremodules 708 may implement all or a portion of auction engine 118 and/orthe trade capture system 120 and/or the trade platform 104, theinterfaces 112, 114, 116. Data necessary or useful for implementing thearchitecture 100 may be stored at one or more databases 710. Also, oneor more user machines 704 may be in communication with the server 702via a network 706. The network 706 may be any kind of suitable wired orwireless network. User machines 704 may be used, for example, byparticipants 102, brokers 110, the clearing corporation 106 and/orclearing members 108 to access the functionality implemented by theserver 702. According to various embodiments one or more of theparticipants 102, brokers 110, clearing corporation 106 and/or clearingmembers 108 may implement the automated interface 112, 114, and 116 tothe sever 702, allowing bids to be submitted and trades to be executedwithout human intervention.

It is to be understood that the figures and descriptions of the presentinvention have been simplified to illustrate elements that are relevantfor a clear understanding of the present invention, while eliminating,for purposes of clarity, other elements, such as, for example, somespecific tasks of the non-execution service provider units describedabove, and the like. Those of ordinary skill in the art will recognizethat these and other elements may be desirable. However, because suchelements are well known in the art and because they do not facilitate abetter understanding of the present invention, a discussion of suchelements is not provided herein.

As used herein, a “computer,” “computer system” or “programmable device”may be, for example and without limitation, either alone or incombination, a personal computer (PC), server-based computer, mainframe, server, microcomputer, minicomputer, laptop, personal dataassistant (PDA), cellular phone, pager, processor, including wirelessand/or wireline varieties thereof, and/or any other computerized devicecapable of configuration for processing data for standalone applicationand/or over a networked medium or media. Computers, computer systems andprogrammable devices disclosed herein may include operatively associatedmemory for storing certain software applications used in obtaining,processing, storing and/or communicating data. It can be appreciatedthat such memory can be internal, external, remote or local with respectto its operatively associated computer or computer system. Memory mayalso include any means for storing software or other instructionsincluding, for example and without limitation, a hard disk, an opticaldisk, floppy disk, ROM (read only memory), RAM (random access memory),PROM (programmable ROM), EEPROM (extended erasable PROM), and/or otherlike computer-readable memory media.

Various modules and components of the architecture 100 and/or the system700 may be implemented as software code to be executed by a processor(s)of any computer system using any type of suitable computer instructiontype. The software code may be stored as a series of instructions orcommands on a computer readable memory medium. The term“computer-readable memory medium” as used herein may include, forexample, magnetic and optical memory devices such as diskettes, compactdiscs of both read-only and writeable varieties, optical disk drives,and hard disk drives. A computer-readable memory medium may also includememory storage that can be physical, virtual, permanent, temporary,semi-permanent and/or semi-temporary.

1. A computer system for conducting an auction for a plurality offinancially settled contracts, the system comprising: means forreceiving a plurality of first participant bids from a firstparticipant; means for receiving a plurality of second participant bidsfrom a second participant; and means for simultaneously matching a batchof bids to create a plurality of awarded bids, wherein the batch of bidscomprises the plurality of first participant bids and the plurality ofsecond participant bids, wherein each bid of the batch of bids relatesto at least a portion of the plurality of financially settled contracts,wherein the matching comprises matching an outright bid with at leastone leg of at least one non-outright bid, wherein a non-outright bid isa bid for a position that does not have a one-to-one correlation to acontract, and has at least one of: (i) multiple legs, where each legrepresents a long or short position in a particular contract, and, (ii)one or more legs each representing a single position that is less thanall of a contract; wherein the non-outright bid comprises a price and anindication of each contract corresponding to a leg of the non-outrightbid, the indication comprising, a quantity, a settlement period, and acontract code, and an indication of which leg or legs are short andwhich leg or legs are long, and wherein the matching does not match anyof the legs of a non-outright bid unless it matches all of the legs ofthe non-outright bid, such that a participant making a non-outright bidhas no risk that less than all of the non-outright bid will be awarded,and wherein the plurality of awarded bids maximizes an economic surplus.2. The system of claim 1, wherein matching the batch of bids wherein theplurality of awarded bids maximizes the economic surplus comprisesmaximizing:$\sum\limits_{b}^{\;}\;{\left( {{BidP}_{b} - {AwardP}_{b}} \right) \times {{AwardQ}_{b}.}}$3. The system of claim 2, wherein the maximizing comprises maximizingaccording to the constraint that${\sum\limits_{b}^{\;}{AwardQ}_{n,b}} = 0.$
 4. The system of claim 2,wherein the maximizing comprises maximizing according to the constraintsthat:0≦AwardQ_(n,b)≦BidQ_(b);−BidQ_(b)≦AwardQ_(n,b)≦0;for each bid with one long contract n: AwardP_(n,b)≦BidP_(b);for each bid with one short contract n: AwardP_(n,b)≧BidP_(b); andAwardP_(b)≦BidP_(b).
 5. The system of claim 1, further comprising meansfor deriving a price for all of the plurality of financially settledcontracts.
 6. The system of claim 1, further comprising means forderiving a price for a contract selected from the plurality offinancially settled contracts, wherein the contract has no awarded bidsin the plurality of awarded bids.
 7. The system of claim 6, whereinderiving the price comprises setting the price to a mid-point between alowest short bid and a highest long bid for the contract selected fromthe batch of bids.
 8. The system of claim 6, wherein deriving the pricecomprises modifying a price for the contract from a previous auction byan amount proportional to a price change of a second contract correlatedto the first contract.
 9. The system of claim 1, further comprisingmeans for publishing at least a portion of un-awarded bids from thebatch of bids to at least one broker.
 10. The system of claim 1, whereinthe matching comprises resolving at least one degenerate solutionselected from the group consisting of a degenerate price solution and adegenerate volume solution.
 11. The system of claim 1, wherein theplurality of financially settled contracts each settle on the price of acommodity type at a location over a settlement period.
 12. The system ofclaim 1, wherein the plurality of contracts comprises at least onecontract selected from the group consisting of an electricity contract,a congestion contract and a loss contract.
 13. The system of claim 1,wherein the at least one non-outright bid comprises a non-outright bidcomprising a first leg and a second leg, and wherein the first leg andthe second leg relate to underlying contracts settling on the price ofdifferent underlying values at different locations over differentsettlement periods.
 14. The system of claim 1, wherein the batch of bidscomprises at least one bid type selected from the group consisting of: aspread bid, a strip bid, a spread of spreads bid, a single period bid, amulti-period bid, a non-contiguous multi-period bid, a proportional bid,a multi-class bid, a multi-period/multi-class bid, a locational bid, atemporal bid, a locational/temporal bid.
 15. The system of claim 1,wherein the plurality of financially settled contracts comprises atleast one contract selected from the group consisting of an oilcontract, a coal contract, a natural gas contract, an electricitycontract, a weather contract, a weather-related events contract, acommodities contract, a passenger contract, a freight contract, and afinancially settled derivative contract of any underlying commodity orsecurity.
 16. The system of claim 1, wherein the matching furthercomprises matching at least one bid with a synthetic equivalent.
 17. Aprogrammable apparatus with a trade platform for conducting an auctionfor a plurality of financially settled forward electricity contractscorresponding to a first spot market, the trade platform comprising: aprogrammable processor with an auction engine configured to generateawarded bids by simultaneously matching bids selected from a batch ofbids received from a plurality of participants, wherein each bidselected from the batch of bids relates to at least a portion of theplurality of financially settled contracts, wherein the matchingcomprises matching an outright bid selected from the batch of bids withat least one leg of at least one non-outright bid selected from thebatch of bids, wherein the plurality of financially settled forwardelectricity contracts comprises a plurality of nodal contracts, whereina non-outright bid is a bid for a position that does not have aone-to-one correlation to a contract, and has at least one of: (i)multiple legs, where each leg represents a long or short position in aparticular contract, and, (ii) one or more legs each representing asingle position that is less than all of a contract; wherein thenon-outright bid comprises a price and an indication of each contractcorresponding to a leg of the non-outright bid, the indicationcomprising, a quantity, a settlement period, and a contract code, and anindication of which leg or legs are short and which leg or legs arelong, and wherein the matching does not match any of the legs of anon-outright bid unless it matches all of the legs of the non-outrightbid, such that a participant making a non-outright bid has no risk thatless than all of the non-outright bid will be awarded, and wherein theplurality of awarded bids maximizes an economic surplus.
 18. The tradeplatform of claim 17, further comprising a trade capture system, whereinthe trade capture system is configured to: receive matched bids from abroker; verify that the broker is authorized to transact on the tradeplatform; and verify that completing a transaction for the matched bidswould not violate a constraint of participants making the matched bids.19. The trade platform of claim 17, wherein the auction engine is alsoconfigured to send a portion of the batch of bids that are unmatched toat least one broker.
 20. The trade platform of 17, further comprising: aparticipant interface for receiving bids from at least a portion of theplurality of participants and forwarding the bids to the auction engine;and a clearing interface for sending match bids to a clearingcorporation and for receiving participant constraints from the clearingcorporation.
 21. The trade platform of claim 17, wherein the awardedbids comprise an equal volume of long bids and short bids for each ofthe plurality of financially settled contracts with at least one set ofawarded bids.
 22. The trade platform of claim 17, wherein the awardedbids maximize at least one auction variable selected from the groupconsisting of auction revenue and transaction volume.
 23. The tradeplatform of claim 17, wherein the batch of bids comprises at least onebid selected from the group consisting of: a spread bid, a strip bid, aspread of spreads bid, a single period bid, a multi-period bid, anon-contiguous multi-period bid, a proportional bid, a multi-class bid,a multi-period/multi-class bid, a locational bid, a temporal bid, alocational/temporal bid.
 24. The trade platform of claim 17, wherein thebatch of bids comprises at least two bids that differ across a classdimension, a locational dimension and a settlement period dimension. 25.The trade platform of claim 17, wherein the plurality of financiallysettled forward electricity contracts comprises contracts that settle atsubstantially all of the nodes of the spot market.
 26. The tradeplatform of claim 17, wherein generating by the auction engine theawarded bids wherein the plurality of awarded bids maximizes theeconomic surplus comprises maximizing:$\sum\limits_{b}^{\;}\;{\left( {{BidP}_{b} - {AwardP}_{b}} \right)*{{AwardQ}_{b}.}}$27. A programmable apparatus with a trade platform for conducting anauction exchange for financially settled contracts, the trade platformcomprising: a programmable processor with an auction engine anddatabase, in communication with a clearing interface, a participantinterface, and a brokerage interface; wherein the auction engine anddatabase is adapted to simultaneously match a batch of bids to create aplurality of awarded bids, wherein the batch of bids comprises theplurality of first participant bids and the plurality of secondparticipant bids, wherein each bid of the batch of bids relates to atleast a portion of the plurality of financially settled contracts,wherein the matching comprises matching an outright bid with at leastone leg of at least one non-outright bid, wherein a non-outright bid isa bid for a position that does not have a one-to-one correlation to acontract, and has at least one of: (i) multiple legs, where each legrepresents a long or short position in a particular contract, and, (ii)one or more legs each representing a single position that is less thanall of a contract; wherein the non-outright bid comprises a price and anindication of each contract corresponding to a leg of the non-outrightbid, the indication comprising, a quantity, a settlement period, and acontract code, and an indication of which leg or legs are short andwhich leg or legs are long, and wherein the matching does not match anyof the legs of a non-outright bid unless it matches all of the legs ofthe non-outright bid, such that a participant making a non-outright bidhas no risk that less than all of the non-outright bid will be awarded,and wherein the plurality of awarded bids maximizes an economic surplus.28. The system of claim 27, wherein (a) the auction engine and databaseis adapted to receive margin parameters and trade limits from theclearing interface, transmit prices to a broker interface, and transmitprices and transactions from the matched bids to the clearing interface,and to receive bids from the participant interface; (b) the participantinterface is adapted to receive the bids and trade limits from aparticipant, transmit prices and participant wards to the participant,and transmit the bids to the auction engine and database; (c) theclearing interface is adapted to receive prices and transactions fromthe auction engine and database and a trade capture system and database,receive margin parameters from a clearing corporation and trade limitsfrom clearing members, transmit the margin parameters and the tradelimits to the auction engine and database and the trade capture systemand database, and transmit the prices and the member transactions to theclearing corporation and the clearing members; (e) the trade capturesystem and database is adapted to receive the margin parameters andtrade limits from the clearing interface, receive a transactionssubmission from a broker interface, transmit the prices and transactionsto the clearing interface, and transmit a transaction approval to thebroker interface; and (f) the broker interface is adapted to receivesthe prices from the auction engine and database, receive thetransactions submission from brokers, receive the transaction approvalfrom the trade capture system and database, transmit the prices and thetransactions approval to the brokers, and transmit the transactionssubmission to the trade capture system and database.
 29. The tradeplatform of claim 27, wherein generating by the auction engine theawarded bids wherein the plurality of awarded bids maximizes theeconomic surplus comprises maximizing:$\sum\limits_{b}^{\;}\;{\left( {{BidP}_{b} - {AwardP}_{b}} \right)*{{AwardQ}_{b}.}}$30. A computer system for conducting an auction for a plurality offinancially settled contracts, the system comprising: means forreceiving a plurality of first participant bids from a firstparticipant; means for receiving a plurality of second participant bidsfrom a second participant; and means for simultaneously matching a batchof bids to create a plurality of awarded bids, wherein the batch of bidscomprises the plurality of first participant bids and the plurality ofsecond participant bids, wherein each bid of the batch of bids relatesto at least a portion of the plurality of financially settled contracts,wherein the matching comprises matching an outright bid with at leastone leg of at least one non-outright bid, wherein a non-outright bid isa bid for a position that does not have a one-to-one correlation to acontract, and has at least one of: (i) multiple legs, where each legrepresents a long or short position in a particular contract, and, (ii)one or more legs each representing a single position that is less thanall of a contract; wherein the non-outright bid comprises a price and anindication of each contract corresponding to a leg of the non-outrightbid, the indication comprising, a quantity, a settlement period, and acontract code, and an indication of which leg or legs are short andwhich leg or legs are long, and wherein the matching does not match anyof the legs of a non-outright bid unless it matches all of the legs ofthe non-outright bid, such that a participant making a non-outright bidhas no risk that less than all of the non-outright bid will be awarded,and wherein the matching comprises resolving at least one degenerateprice solution by minimizing a least squares deviation from a historicprice for the at least one degenerate price solution.
 31. The system ofclaim 30, wherein minimizing a least squares deviation from a historicprice comprises minimizing:$\sum\limits_{{{All}\mspace{11mu}{nodes}}{{with}\mspace{11mu} a\mspace{11mu}{range}}{{of}\mspace{11mu}{valid}\mspace{11mu}{prices}}}^{\;}\;{(\Delta)^{2}.}$32. A computer system for conducting an auction for a plurality offinancially settled contracts, the system comprising: means forreceiving a plurality of first participant bids from a firstparticipant; means for receiving a plurality of second participant bidsfrom a second participant; and means for simultaneously matching a batchof bids to create a plurality of awarded bids, wherein the batch of bidscomprises the plurality of first participant bids and the plurality ofsecond participant bids, wherein each bid of the batch of bids relatesto at least a portion of the plurality of financially settled contracts,wherein the matching comprises matching an outright bid with at leastone leg of at least one non-outright bid, wherein a non-outright bid isa bid for a position that does not have a one-to-one correlation to acontract, and has at least one of: (i) multiple legs, where each legrepresents a long or short position in a particular contract, and, (ii)one or more legs each representing a single position that is less thanall of a contract; wherein the non-outright bid comprises a price and anindication of each contract corresponding to a leg of the non-outrightbid, the indication comprising, a quantity, a settlement period, and acontract code, and an indication of which leg or legs are short andwhich leg or legs are long, and wherein the matching does not match anyof the legs of a non-outright bid unless it matches all of the legs ofthe non-outright bid, such that a participant making a non-outright bidhas no risk that less than all of the non-outright bid will be awarded,and wherein the matching comprises resolving at least one pathdegenerate solution by maximizing a volume of awarded bids.
 33. Acomputer system for conducting an auction for a plurality of financiallysettled contracts, the system comprising: means for receiving aplurality of first participant bids from a first participant; means forreceiving a plurality of second participant bids from a secondparticipant; and means for simultaneously matching a batch of bids tocreate a plurality of awarded bids, wherein the batch of bids comprisesthe plurality of first participant bids and the plurality of secondparticipant bids, wherein each bid of the batch of bids relates to atleast a portion of the plurality of financially settled contracts,wherein the matching comprises matching an outright bid with at leastone leg of at least one non-outright bid, wherein a non-outright bid isa bid for a position that does not have a one-to-one correlation to acontract, and has at least one of: (i) multiple legs, where each legrepresents a long or short position in a particular contract, and, (ii)one or more legs each representing a single position that is less thanall of a contract; wherein the non-outright bid comprises a price and anindication of each contract corresponding to a leg of the non-outrightbid, the indication comprising, a quantity, a settlement period, and acontract code, and an indication of which leg or legs are short andwhich leg or legs are long, and wherein the matching does not match anyof the legs of a non-outright bid unless it matches all of the legs ofthe non-outright bid, such that a participant making a non-outright bidhas no risk that less than all of the non-outright bid will be awarded,and wherein the at least one non-outright bid is a linear combination.34. The system of claim 33, wherein maximizing an economic surpluscomprises maximizing:${\sum\limits_{b \in {bids}}^{\;}\;{{BidP}_{b} \times {AwardQ}_{b}}},$where for each contract, n:${{{\sum\limits_{{b \in {bids}},{n \in {contracts}}}^{\;}\;{AwardQ}_{b,n}} = 0}\;,\mspace{11mu}{{{where}\mspace{14mu}{AwardQ}_{b,n}} = {{AwardQ}_{b} \times Y_{b,n}}},}\mspace{14mu}$where Y is a vector that describes the weights on each of the underlyingcontracts in a bid b, and subject to the constraint on specific bidsthat the quantity awarded not exceed the quantity of the bid accordingto: 0≦AwardQ_(b)≦BidQ_(b).